Economic Partnership Agreements

1. Economic Partnership Agreements TURIN 16 July 2007

2. EPAs background • Cotonou agreement established the mandate for EPA negotiations as follow up to unilateral preferences • Negotiations between the EU and ACP countries • Divided into 6 subregions • Caribbean, Pacific, West Africa, East Africa, Central Africa, Southern Africa • To be finalised end 2007 • EPAs are FTAs

3. EPAs state of play • Overall • Review took place for all regions • Pacific • Focus on present challenges • Lack of focus on future challenges

4. Pacific 14 Countries Joint Road Map: • Sustainable development • Gradual integration in the global economy • Contribution to poverty eradication • Based on principles of development dimension, regional integration as basis, WTO compatible and flexible.

5. Pacific • Shortage of skilled human resources to negotiate EPAs • A regional preparatory taskforce for linking trade and development has not been established yet due to divergence between the Pacific states and the EU on the linkage between development cooperation and EPAs

6. State of Play • EPA negotiations supplant the regional integration process • Pacific Plan for Regional Integration • Important areas: fisheries, tourism, digital strategy, energy policies, urbanization, bio security and safety, climate change, education, health, management of natural disasters, participatory democracy and financial regulation

7. State of Play • Expansion of the market for trade in goods • Integration of trade in services including mode 4. • Regional trade facilitation programme • Private sector mechanisms

8. Pacific countries priorities (PACP) • Informal text tabled in July 2006 • Trade and development key • Fisheries • Tourism, • Investment • Rules of Origin • Services-mode 4 • Accession clause for some countries to join in later

9. EU proposals • Services • Fisheries • Establishment • Trade facilitation • Anti-dumping, Competition, IPR, social and environmental issues, sustainable development • Rules of Origin • Market Access offer (tabled in March 2007)

10. Goods • Only signed by countries that have an interest in and capacity for trade in goods with the EU • 6 to 11 PACPS might sign depending on rules of origin • EU offered DFQF access except for some sensitive products • PACPS have not made offer yet

11. Trade facilitation • This chapter will include customs • Technical Barriers to Trade • Sanitary and Phytosanitary measures • Specific language is still under discussion

12. Rules of Origin • Current rules are not beneficial and are based on cumulation with other ACP regions. The PACPS want to use the criterion of substantial transformation • And enhanced ROO is key issue • Art 37(7) of Cotonou provides for improvement of ROO • EU proposal is based on value added approach which is opposed by ACP. They would need to buy inputs from ACP countries or the EU

13. Trade Defence • Safeguards • Anti-dumping measures • Anti-subsidy measures • Possibly an infant industry clause

14. Services • Liberalization in compliance with GATS • Request and offer • PACPS want to retain GATS approach • Mode 4 concessions are a crucial element for PACPS • January 2007 proposal for mode 4 skilled and semi skilled by PACPS in sectors like construction, health and maritime • Subgroup for negotiations

15. Investment • Investment Promotion and Protection Agreement Plus (IPPA+) to be included in the EPA • Standard IPPA provisions • Market access under mode 3 in services • Strong provisions on transparency and good governance • Financial and technical assistance

16. Fisheries • Key sector in the EPA • Continuation of duty free access into EU and simplified ROO • Need for conservation of resources • Need for development of fishing and processing industries • Tuna fish industry and management of stocks • Subgroup on fisheries

17. Other trade related issues • Competition policy, government procurement and IPR • Environmental and labour clauses • Need for additional development assistance for these if to be negotiated • Development assistance available but pay out rates have always been low in the past

18. Consultations • Consultations with stakeholders have been put forward as important elements of EPAs • Consultations with trade unions have been rather weak • Results of consultations remains poor

19. Decent Work in EPAs • Not getting much attention • Different regions • 4 decent work pillars all to be included • Labour standards. • Productive employment • Social protection • Social dialogue

20. Criticism on EPAs • Reciprocity in goods and services commitments • WTO Art XXIV • the increasing number of bilaterals that feature WTO plus liberalisation commitments are likely to set the pattern for multilateral agreements at the WTO in the future

21. WTO Art XXIV • The WTO includes provisions for Free Trade Areas (FTAs) and Customs Unions which set rules for the negotiations of bilaterals. These provisions require that such FTAs or Customs Unions have to liberalise trade beyond WTO liberalisation – in other words, to be based on WTO plus provisions. • Art. XXIV of the General Agreement on Trade in Tariffs (GATT) on Regional Trade Agreements requires that duties (tariffs) and other restrictive regulations of commerce must be eliminated with respect to substantially all trade between the partner countries. The duties and charges taken into consideration have to be applied rates and the elimination has to take place in a reasonable length of time, which has been set at 10 years maximum. Furthermore, such bilateral agreements have to be notified to the WTO.

22. Services • Services liberalisation means that rules and regulations will be made less stringent, so that it becomes easier for foreign service providers to provide services in another country. • The main aim is to eliminate discrimination between domestic and foreign service providers. This can create the risk that regulation necessary to ensure equal and affordable access to services for ordinary people is abolished or relaxed. • It also creates the risk that domestic enterprises that are not competitive enough will be forced out of the market by foreign companies or disappear through company take-overs, and it can have negative impacts on wages and inequality.

23. Services • Agreements for trade in services are normally based upon commitments. Governments commit certain services sectors or subsectors in which they allow foreign service providers to provide services in their country. This is done for example by increasing the number of service suppliers, or by reducing qualification requirements. • Many of the bilaterals are based on the system of a negative list or “top down” approach. This means that all services sectors are subject to liberalisation between the countries, with the exception of those sectors explicitly included on a so-called “negative list”. • Often there is further liberalisation in terms of deregulation or abolition of rules that are considered trade restrictive.

24. WTO plus provisions • TRIPS • Investment • Competition policy • Government procurement

25. TRIPS • Provisions in bilaterals generally include longer patent periods that lengthen the periods before production of generic products can start. The effect of such reinforced provisions has been reduced access to medicines as a result of price increases due to the replacement of cheaper generic drugs by expensive patented drugs. • Bilaterals may also include provisions on data exclusivity and testing data, which means that such data cannot be used to test the security of generics and therefore that costly tests will have to be undertaken by the generics producers, which further increases the price of medication. • For example, the US-Peru agreement includes a provision on data exclusivity, which is estimated to more than double the cost of the medicines concerned. Colombia has predicted that the agreement with the US would lead to a loss of market share for its generic industry of 71%, which will have a significant influence on prices. The Special Rapporteur of the UN on the Right to Health has expressed concerns about such bilaterals that reduce the access to cheaper generic medicines, and a commission of the World Health Organisation (WHO) has recommended avoiding such provisions in trade agreements. • People with HIV/AIDS will be particularly affected by stronger intellectual property provisions, as these can increase annual costs for medication from US$ 132 per patient with generics to US$ 15,000 per patient if using the patent-protected drugs[1]. • Moreover, whether exercised through the WTO or bilaterals, there is an absence of evidence of stronger intellectual property protection leading to more innovation or the development of new and useful medicines.

26. Investment • Most bilateral trade agreements also contain provisions that regulate investment between the partner countries to some degree. • Common investment provisions in bilaterals include substantial market opening, non-discrimination of foreign investors as compared to local firms, protection of investors, the right to establishment, investor to state dispute settlement procedures, pre-establishment provisions, and expropriation rules. Many of these protections are common in Bilateral Investment Treaties as well. • One negative effect of such investment provisions concerns their preventive effect on policy making, in that governments refrain from laws and regulations to promote local enterprises or that provide for financial stability or for social and environmental protection, because there might be a dispute as a result.

27. Investment • Furthermore, although much emphasis has been put on attracting foreign investment, there is considerable doubt as to whether such strong investor protections will lead to increased foreign investment (studies from World Bank, UNCTAD and OECD for example have concluded that more market access, incentives and restricted regulation will not lead to increased investment in Africa). Prohibiting rules that regulate investment makes it much harder for governments to keep the benefits of investment in the country. • At the same time it has to be noted that efforts at FDI attraction have often led not to non-discrimination but in fact to more favourable treatment of foreign investors than local firms, and have thus brought about de facto discrimination against local companies. It is clear that foreign companies should not get more favourable treatment than local companies, nor be exempted from certain labour, fiscal or other legislation.

28. Competition Policy • Bilaterals often cover rules on competition, addressing issues such as the excessive market power of large corporations such as in cartels (collusive agreements), restrictive business practices, and abuses of market power • The objective in bilaterals is to have similar provisions for competition policy in the partner countries. For countries that have a similar level of development, such a convergence can facilitate business relations. • However, some developing countries do not have competition legislation in place yet, whereas many adapt competition legislation to specific local challenges. • Generally speaking, such development-oriented competition policy is intended to promote the emergence of local businesses that could contribute positively to economic development, sometimes requiring the acceptance of what might otherwise be considered anti-competitive practices. • The risk of competition policy in trade agreements is that it is drafted in the interest of multinational companies, and is developed to facilitate cross-border mergers and acquisitions, • whereas developing countries would want provisions that set rules for mergers and acquisitions which take into account development concerns and other domestic priorities, including workers’ interests.

29. Competition Policy • The inclusion of competition policy in bilateral agreements is also capable of undermining public enterprises or monopolies. • It may further restrict the capacity of governments to set regulations of public interest or industrial policies. • Or set regulatory policies that for example protect the environment, restrict foreign ownership in certain sectors, or promote local content. • The principle of non-discrimination would prevent countries from protecting domestic companies from the actions of large multinationals and prohibit policies that benefit domestic companies. • It could clash with attempts by governments to carve out certain activities from market competition and put in place public interest regulations that govern markets when there is competition. • Rather than addressing the global market dominance of large global companies, the current competition policy provisions in bilaterals further the interests of such companies.

30. Government Procurement • Government procurement is the purchase by governments of goods and services. These can involve major contracts, such as the purchase of computers for government offices, or the construction of a road or tunnel. • Such purchases are often restricted by rules that allow only domestic companies to bid for such contracts or that give preference to domestic companies when bidding for contracts. • They may also include social criteria, such as requiring that bidders respect a number of workers’ rights, or favour particular suppliers for social purposes such as encouraging purchases from a particularly poor or disadvantaged region. • the bilateral trade agreements aim to increase transparency in government procurement. • but bilateral negotiations often aim to go much further and include market access provisions, to ensure that companies of one country can bid for contracts in another country without being discriminated against. • Given the economic impact of public procurement – frequently accounting for some 10% of GNP, with commensurately sizeable employment implications - this is clearly an issue of immense importance for national development as well as employment meaning that any consideration of negotiating on public procurement needs to be the subject of intense prior national policy debate.

31. Warning 1 • Be extremely careful with proposals for across the board tariff reductions on a line by line basis. • A clear understanding is needed on what the impact will be, and regarding which tariffs are proposed to be reduced and which should be maintained, based on the trade flows between the two countries. • There may be little domestic employment to be lost from lowering tariffs on products that are not produced domestically, or which serve as inputs in domestic production. • However, competing products might need more careful treatment, either by applying lower tariff cuts or by increasing implementation periods. • In all cases, it is essential to assess the possible impact on domestic industries and employment.

32. Warning 2 • Be careful with the “Singapore” issues (investment, competition policy, government procurement and trade facilitation). • It is advisable for any country to ensure a sufficient and balanced domestic legal framework for investment rules, competition rules and government procurement before making them part of obligations in a trade agreement. • Another consideration if that provisions in bilateral agreements aim for setting rules that are part of the agreement and subject to dispute settlement, and cannot be changed or withdrawn, unlike unilateral incentives. • Any investment provisions should be balanced and not only provide rights to investors, but also set obligations in line with social, environmental, labour standards and development policies.

33. Warning 3 • Avoid a negative list, top-down approach to services. A negative list approach means that all services sectors are committed automatically and opened up for foreign service providers. • Sectors that governments do not want to include have to be mentioned separately when a negative list approach is used. • This requires any government to be very vigilant on which sectors it wants to liberalise and which sectors or subsectors it wants to protect, and to have the capacity to anticipate the future development needs of the country into the distant future.

34. Warning 4 • Avoid the absence of safeguards. Safeguard mechanisms can be very important when negotiating bilateral agreements, especially if tariff reductions or services commitments are far-reaching. • It is important that a safeguard provision be relatively easy to use and the procedure for applying safeguards not too lengthy. • Processes that are too time-consuming and complicated risk resulting in domestic production being seriously affected before any protection can be put in place.

35. Warning 5 • Avoid the absence of a social dimension in the trade agreement. • An agreement that only addresses economic and business interests is likely to have negative social side effects. • The right balance between economic interests and social interests has to be achieved in a bilateral agreement. This is only possible if both are subject to the same dispute and enforcement mechanisms.

36. Conclusions • The difference in levels of development between the EU and ACP countries is huge • Even if accomodating current concerns it will be hard to accommodate future concerns • The real interest of the EU is to completely open up the ACP markets • There are alternatives to EPAs